Learn about the banking products and services that customers enjoy today including CDs, debit cards, wire transfer and more.
The Different Banking Products and Services
Apart from savings, loans, credit cards, etc., there are other useful services that banks provide to their customers. Some of the different types of banking services include bank guarantee, certificate of deposits, debit cards, factoring, bank draft, bank transfers, and trade finance.
BANK GUARANTEES
A bank guarantee is a popular alternative to providing a bond or deposit to a seller directly. It is an undertaking by a bank on behalf of its customers that it going to pay a certain amount of money upon receiving a written demand for payment from the seller. If the debtor fails to make payment as agreed, the bank will make the payment on behalf of the debtor. A bank will only offer a guarantee when you have some cash as deposit in your account with the bank or if you have any other form of security acceptable by the bank.
The benefits of a guarantee
- A guarantee makes it possible for you to meet your obligations to a seller/supplier while still having the comfort of having your money in the bank. When you constantly use these guarantees, you will never have problems that arise from payment with the suppliers.
- A guarantee assures a vendor or supplier of payment. They know they will receive payment for the good supplied to the buyer when they send a written demand to the bank. There is no need for them to hold or manage bonds from the customers. This helps them to ensure that their businesses will run smoothly.
- Guarantees can have expiry dates. There are others which can be open-ended. You should talk to your supplier or vendor so that he can advise you on whether the guarantee should be open-ended or whether it should have a fixed expiry date. An open ended guarantee provides maximum security. A guarantee that has an expiry date will automatically cease after the expiry date.
The buyer pay a small fee on the day that the bank issues a guarantee to the supplier.
CERTIFICATES OF DEPOSITS
Learn what is a certificate deposit or bank CD and of the benefits and disadvantages to the customer holding one.
What is a CD?
The fixed deposit is one of the safest investment options. It is basically a time deposit account. You have to give your bank money for a predefined period of time in exchange for interest payments. This type of account restricts you from withdrawing the funds that you have in your account on demand. Although it is possible to withdraw your money when you need it, you will have to incur a penalty. A CD usually has a fixed interest rate and a maturity date. The term of a CDs ranges from one month to five years. Like other types of investment CDs have benefits and disadvantages.
Benefits of a Bank CD
Most people choose CDs because they are considered to be very safe. They have no risk. CDs are covered by the federal deposit insurance. Banks consider them as savings deposit. Things will only go wrong when the economy is in very bad shape.
Another key advantage of CDs is the fact that you will have control over the term and the amount of money invested. If you don’t want to lose control over your money for a long time, you can buy a CD with a term of three months. If you still want to invest at the end of the three months there will be nothing stopping you from doing so.
Disadvantages of a CD Account
You will have limited liquidity if you decide to buy a CD. This is because you will not be able to access your money without penalties when you have an unanticipated need. Your money may also lose its purchasing power if inflation rate overtakes the rate of interest.
DEBIT CARDS
This is a card that a bank issues which allows the holder to transfer money via electronic medium from one bank account to a another while making a purchase payment. It is an alternative to a credit card when making payment for purchases. Using this card to pay bills or even to make an account transfer is an assurance that whatever you are doing will be fast and secure. There are three major types of cards banks offer, as follows:
Prepaid card
Even if it is called a debit card, this type of card is a little bit different from a bank account card. A normal bank account card links directly to one’s checking account but a prepaid card is not. While a regular card does not require a prior deposit to your account, a prepaid card demands that one should deposit the cash first in order to activate the card or rather to render the card useful.
Re-loadable debit card
A re-loadable debit card is more or less like any credit card but spends like a debit card, hence in other words, it is a card which possesses the same characteristics as both debit and credit cards. As far as it looks like a credit card and works like a debit card, a re-loadable card is categorized into a class of its own. This type of card is really exploding as it is gaining popularity at a faster pace.
Virtual Debit card
This is a tool that customers use as a substitute to a regular card. With this type of card, a user’s card number is going to be generated each and every time one needs to use the services such as paying bills or buying goods. Transaction with this type of card is wholly online and there is no actual use of physical cards hence the name virtual. This is one of the best ways to make a purchase or even bill payments as there is no need of a card and the transactions will take the shortest time possible. If you are looking forward to getting the best and secure transaction dealing with a lot of money then virtual cards should be among the tools of trade in your list.
FACTORING
Learn what is factoring and of the various steps involved in the service and the advantages to participating companies.
What is factoring?
This service, also referred to as invoice financing, is when a business sells its accounts invoice or receivable to a third party. The third party is usually referred to as a ‘factor’. This helps the business receive funds that it normally waits 30-60 days to receive. It is not considered to be a loan. Factoring assumes no debt, therefore, there is no restriction on the funds a business receives. This provides a business with more flexibility than a traditional bank loan. The service has been around for centuries. Just like other tools, it has evolved to become what it is today.
The five steps of factoring
- You offer your services to a customer.
- After offering the services, you will send your invoice to the factoring company.
- The company provides a cash advance on your invoice.
- You will then collect full payment from your customer.
- The company gives you the rest of the invoice amount after deducting a fee.
The advantages
Factoring is a very important financial tool for many businesses. The main reason why many businesses use the service is the fact that it quickly helps to boost their cash low. Most factoring companies will provide funds to businesses within 24 hours. This helps to prevents short term cash issues that can hinder the performance of a business. The other advantages of such financial services include the following:
- It can be managed and customized to provide a business with the capital it needs to run efficiently.
- The financing will not show up on your business’ balance sheet as debt.
- It is based on your customer’s credit history, not your credit history or that of your business.
- There is no limit to the amount of cash that a business can receive.
- It aligns well with startup which need immediate financing
- It creates a line of credit that is based on sales, not the net worth of your company.
More Banking Products and Services
Other types of banking services are bank draft, bank-to bank transfers and trade finance.
INTERNATIONAL BANK DRAFT
A bank draft is a check that guarantees that the issuing bank is going to make a payment. Typically, the customer pays for the draft before it is issued.
The different between bank drafts and other similar documents
Bank drafts offer a mix of convenience and security. They are much better than a personal check. The name of the person or party issuing a bank draft for payment does not appear anywhere in the document. Although the party who purchased it gets the document, it contains the name of the recipient. There is one often added security on the document e.g. a hologram. In most cases, two persons from the bank sign the draft.
Rules governing bank drafts
The rules governing bank drafts vary from one place to another. However, all bank drafts are meant to guarantee payment of the amount. The person receiving the bank draft does not have to worry about bouncing because of insufficient funds. This is why people consider them to be much better than personal checks. This is also the reason why they are so poplar for paying for expensive items such as houses and cars.
BANK-TO-BANK TRANSFERS
Learn what is a wire transfer and of the process followed by banks to send money on behalf of their customers.
What is it?
This service involves the electronic transfer of money through a network. It is administered by hundreds of banks all over the world. A transfer makes it possible for individuals to transfer funds to entities or other individual fast. You can easily send money to people or organizations in different places around the globe. Banks usually collect charges based on a percentage of the transfer amount.
Bank wire process
Wiring money is one of the cheapest ways to move funds between different bank accounts. The following steps are usually taken;
- The person or entity wishing to wire money approaches the bank and orders it to wire money.
- The sending bank will then send a message using a secure system such as Fedwire or Swift to the bank that will receive the money. The message requests the receiving bank to effect payments based on the instructions given.
- The actual transfer is not instant. It may take several hours, sometimes days for the money to move from the sender to the receiver. The message sent to the receiving bank often contain settlement instructions.
- The banks involved in the transfer hold reciprocal accounts. Payments can only be sent to a bank with such an account.
TRADE FINANCE
Trade finance basically means financing for trade. It includes activities like export credit, factoring, insurance etc. The sale of goods or services requires both a buyer and a seller. There are many intermediaries that help to facilitate transactions between these two parties by financing the trade. Companies that do trade finance include exporters and importers, financiers and banks, export credit agencies and insurers and other service providers.
The role of trade finance in international trade
Internal trade has been in existence for many centuries. Trade finance has helped to make international trade more efficient. It has helped to facilities the international trading process further. The enormous growth of import and export trade can be attributed to trade finance.
The exporter may want to ensure that the importer makes payments for the goods before they are shipped. Such payment can be made from the company’s checking accounts. This helps to reduce the risk of not receiving payment after shipping the goods. This is where banks and other financial institutions come in. The importer can provide a letter of credit that will help to ensure that the exporter gets paid after presenting the documents required (e.g. the bill of landing). A bank guarantee is another trade finance product that banks offer in this regard.
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